PART 1. COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 20. STATEWIDE PROCUREMENT AND SUPPORT SERVICES
SUBCHAPTER D. SOCIO-ECONOMIC PROGRAM
DIVISION 1. HISTORICALLY UNDERUTILIZED BUSINESSES
34 TAC §§20.281 - 20.294, 20.297, 20.298
The Comptroller of Public Accounts adopts amendments to §20.281, concerning policy and purpose, §20.282, concerning definitions, §20.283, concerning evaluation of active participation in the control, operation, and management of entities, §20.284, concerning statewide annual HUB utilization goals, §20.285, concerning subcontracts, §20.286, concerning state agency planning responsibilities, §20.287, concerning state agency reporting requirements, §20.288, concerning the certification process, §20.289, concerning protests, §20.290, concerning recertification, §20.291, concerning revocation, §20.292, concerning certification and compliance reviews, §20.293, concerning Texas historically underutilized business certification directory, §20.294, concerning graduation procedures, §20.297, concerning HUB forum programs in state agencies, and §20.298, concerning mentor-protégé program, with changes to the proposed text as published in the February 3, 2023, issue of the Texas Register (48 TexReg 477). The rules will be republished.
The amendment of §20.281 deletes a sentence that described Chapter 20, Subchapter D, Division 1. That description was incomplete and unnecessary.
The amendments of §20.282 update and rearrange the definitions as needed and expressly refer to additional applicable definitions located in §20.25.
The amendment of paragraph (1) revises the definition of "applicant" to remove the term "supplier" from the list of business organizations that may apply for HUB certification. A supplier is not a form of business organization recognized by the Texas HUB program. The amended definition of "applicant" also adds the catchall term "other business organizations," to indicate that the list of business organizations is not exhaustive.
The amendment of paragraph (2) revises the definition of "application" to mean the set of materials submitted by an applicant for HUB certification, rather than the comptroller's form for requesting HUB certification. This revised definition is consistent with the usage of the term in Chapter 20, Subchapter D, Division 1.
The amendment of paragraph (3) revises the definition of "commodities" to recognize that that term may include goods sought by the state, or contracted for, not only goods that have been delivered.
The amendments of former paragraphs (4), (5), and (24) delete the definitions of "comptroller," "contractor," and "respondent" because the terms are defined in §20.25 of this title (related to Definitions) and these definitions apply to the entire chapter, including Subchapter D, Division 1.
The amendment of former paragraph (6) deletes the definition of "directory" and replaces it with "HUB directory" in new paragraph (9), which is the term used throughout Chapter 20, Subchapter D, Division 1, and revises its definition. The revised definition provides the current name of the directory and informs that it is an online resource.
The amendment of former paragraph (8), renumbered paragraph (5), revises the definition of "economically disadvantaged person" to state that this term has the definition assigned by Government Code, Chapter 2161.001(3).
The amendment of former paragraph (9) deletes the definition of "forum" because the term is explained in §20.297, concerning HUB forum programs for state agencies.
The amendment of former paragraph (10), renumbered paragraph (6), revises the definition of "graduation" to use the term "size standards" rather than "comptroller's size standards for HUB certification," consistent with the rest of Chapter 20, Subchapter D, Division 1, and to indicate that a business becomes ineligible for HUB certification when it exceeds the size standards.
The amendment of former paragraph (11), renumbered paragraph (7), revises the definition of "historically underutilized business (HUB)" for clarity and style by eliminating surplus verbiage and needless cross-references to other definitions. The defined term "qualifying owner," contained in former paragraph (19), renumbered paragraph (17), is used to make the definition more readable.
The amendment of former paragraph (12), renumbered paragraph (8), revises the definition of "historically underutilized business (HUB) coordinator" to better describe the role and to remove language that merely restates Government Code, §2161.062(e). The responsibilities of a HUB coordinator are more thoroughly stated in §20.296, concerning HUB coordinator responsibilities.
The amendment of former paragraph (13) deletes the definition of "HUB report" because the definition conflicts with the usage of the term in the rules, and the meaning of the term is otherwise clear from context.
The amendment of former paragraph (14) deletes the definition of "HUB business plan" because the term is only used once in §20.286, concerning state agency planning responsibilities, where its meaning is clear from context.
The amendment of former paragraph (15), renumbered paragraph (10), revises the definition of "HUB subcontracting plan" to better describe what a HUB subcontracting plan is, and to remove miscellaneous facts that do not define the term.
The amendment of former paragraph (16), renumbered paragraph (11), revises the definition of "mentor-protégé program" for clarity and to remove a requirement for certain state agencies to implement such a program, which is not part of the definition. That requirement is retained in §20.298, concerning the mentor-protégé program.
The amendment of former paragraph (19), renumbered paragraph (17), deletes the definition of "owner or qualifying owner" and replaces it with "qualifying owner" only in renumbered paragraph (16), because "owner" is a substantially broader term that includes anyone who legally owns a business, even if they would not qualify to own a historically underutilized business. The definition is further revised to indicate that the term is singular and not plural, to eliminate a needless cross-reference to another definition, and for style.
The amendment of former paragraph (20) deletes the definition of "person or natural person" and moves the definition of "person" only to new paragraph (14), because the term "natural person" is no longer used in Chapter 20, Subchapter D, Division 1. It is further revised to eliminate the requirement of U.S. citizenship or veterancy, which is not part of the ordinary meaning of "person." The U.S. citizenship or veterancy requirement is relocated to the definition of "qualifying owner" in renumbered paragraph (17).
The amendment of former paragraph (21) deletes the definition of "principal place of business" and moves the revised definition to new paragraph (15). The revised definition eliminates a needless cross-reference to another definition.
The amendment of former paragraph (22) deletes the definition of "professional services" and moves it to new paragraph (16).
The amendment of former paragraph (23), renumbered paragraph (18), revises the definition of "resident of the state of Texas" to reduce the requirement of physical residence from 12 consecutive months to six consecutive months if the person has indicated Texas residency on their latest federal income tax return.
The amendments of former paragraphs (26), (28), (31), and (32) delete the definitions of "SBA," "subcontractor funds," "treasury funds," and "USAS" because these terms are not used in Chapter 20, Subchapter D, Division 1.
The amendment of former paragraph (27), renumbered paragraph (20), revises the definition of "subcontractor" to replace the word "person" with "entity." The usage of "person" in this definition was inconsistent with the definition of "person" in §20.282. The revised definition makes it clear that a subcontractor may or may not be working on a contract for a state government entity. It also states that an employee of a contractor is not considered a subcontractor, but contract workers may be subcontractors.
The amendment of former paragraph (29), renumbered paragraph (21), revises the definition of "size standards" for ease of understanding and to add a cross-reference to §20.294, concerning graduation procedures.
The amendment of former paragraph (33), renumbered paragraph (23), revises the definition of "vendor identification number" for ease of understanding.
The amendment of former paragraph (34), renumbered paragraph (24), revises the definition of "work" so that it is no longer limited to the context of a government contract.
The amendment of former paragraph (35), renumbered paragraph (25), revises the definition of "working day" to eliminate days on which a state agency is declared closed by its executive officer. As revised, the definition will provide more clarity for contractors and subcontractors.
The amendment of §20.283 utilizes the term "qualifying owner" as defined in §20.282. It also incorporates language that was previously contained in §20.292 into a new subsection (c). As a result, the substance of the active participation requirement is now entirely contained in §20.283.
The amendment of §20.284 revises the section for readability and concision and deletes language that is no longer needed. The amendment also adds to subsection (d) two optional measures an agency may take to help show its good faith effort to meet HUB utilization goals: providing courtesy reviews of HUB subcontracting plans and offering HUB compliance training during vendor conferences or agency HUB forums. Subsection (e) is revised to add a reference to the Government Code, Chapter 2161 definition of "economically disadvantaged person," which the comptroller considers more appropriate than the reference it replaces.
The amendments of §20.285 reorganize and condense the rule for ease of readability.
The amendment of subsection (a) uses the term "contract value," which is defined in §20.25. It also recognizes that the only official source of HUB certification information is the comptroller's online HUB directory.
The amendment of subsection (b) replaces the special rule for "alternative delivery methods" for construction, which were not explained or defined in rule. Instead, it includes a rule allowing state agencies to specify separate deadlines for the HUB subcontracting plan and other parts of the response. For example, this will allow an agency bidding a construction project to accept HUB subcontracting plans after other parts of responses are due, as long as it does not open responses until the HUB subcontracting plans are due. Revised subsection (b) also clarifies the notice provided to vendors in a solicitation regarding HUB subcontracting requirements. Finally, it provides additional examples of both minor deficiencies in a HUB subcontracting plan that may be corrected after submission and significant deficiencies that render the HUB subcontracting plan nonresponsive.
The amendment of subsection (c) requires a respondent to use a HUB subcontracting plan form prescribed by the comptroller. It also eliminates an incomplete description of the content that may appear on the forms, such as "the expected percentage of work to be subcontracted" and "the approximate dollar value of that percentage of work."
The amendment of subsection (d) consolidates and organizes information about the four methods by which a respondent may demonstrate a good faith effort to include HUBs in subcontracting, which information was previously scattered among several subsections. While the four methods are substantially the same as before, the revised rule gives them names: the solicitation method, the all-HUB-subcontractors method, the meeting-or-exceeding-HUB-goal method, and the self-performing method. Paragraph (1), which covers the solicitation method, clarifies that neither the day on which the respondent sends notice to a HUB nor the day on which the respondent submits its response counts toward the minimum number of days the respondent must give HUBs to bid on subcontract work. Paragraph (3), which covers the meeting-or-exceeding-HUB-goal method, eliminates from the conditions of meeting the utilization goal the prohibition on using HUBs with which the respondent has existing contracts that have been in place for more than five years. This prohibition was inconsistent with the statutory aim of increasing HUB participation in state contracts, which is not limited to new HUBs or new HUB subcontracting relationships.
The amendment of subsection (e) improves style and adds clarity, and further clarifies that revisions of a submitted HUB subcontracting plan may be made in accordance with subsection (b)(4).
The amendment of subsection (f) separates the contractor's duty to maintain records demonstrating HUB compliance from its duty to submit periodic reports of its compliance to the state agency. The latter obligation is relocated to revised subsection (g), concerning progress assessment reports.
The amendment of subsection (g) allows the state agency to accept progress assessment reports from the contractor electronically, provided that the electronic report meets the comptroller's formatting and content requirements.
New subsection (h) consolidates and organizes state agency requirements to monitor HUB subcontracting plan compliance during the contract, which were previously scattered among multiple subsections. It no longer instructs a state agency to require the contractor to report payments to subcontractors, which duplicated a requirement in revised subsection (g). Instead, it requires the agency to carefully review the contractor's progress assessment reports, including whether the contractor is utilizing only subcontractors named in the HUB subcontracting plan. It also removes the references to reporting a contractor's noncompliance "in accordance with §20.585 of this title (relating to Debarment) and §20.586 of this title (relating to Procedures for Investigations and Debarment)," because those referenced sections do not mention reporting to the comptroller. Instead, new subsection (h) states that the state agency shall report such noncompliance "in accordance with §20.509 of this title (relating to Performance Reporting)" and may also report it as grounds for potential debarment.
New subsection (i) states the rule for amending a HUB subcontracting plan. Because HUB subcontracting plan amendments may occur outside the context of monitoring a contractor's compliance with the HUB subcontracting plan, the two subjects no longer occupy the same subsection. New subsection (i) also clarifies that a contractor must demonstrate good faith by complying with the requirements of subsection (d) in the development of an amended HUB subcontracting plan. Although the substance of the rule is not significantly changed from the prior version, it is condensed.
The amendment of §20.286 revises the section for accuracy and ease of comprehension. The revised subsection (a) more accurately states the goal of Government Code, Chapter 2161, Subchapter D, to increase HUB utilization by state agencies. The revised subsection (c) articulates that an agency's legislative appropriation request must demonstrate compliance with statutes and rules related to HUBs.
The amendment of §20.287 adds a descriptive title to each subsection for ease of use. The revised subsection (b) eliminates language related to contractor reporting of payments to subcontractors, which duplicated a requirement in §20.285. The revised subsection (d) provides the correct reference to the statute which addresses group purchasing for health care. The revised subsection (e) eliminates the term "bids," which was not defined, and instead refers to the defined term "responses" and clarifies that the comptroller reports the graduation rates for HUBs, rather than subgroups of HUBs, consistent with Government Code, §2161.121(a)(3). The revised subsection (g) eliminates the term "HUB credit," which was not defined, and instead refers to HUB "expenditure," consistent with Government Code, §2161.122(c). The revised subsection (g) adds a new clause stating that if a business is certified as a HUB for at least one day during a reporting period, all payments to that business for the entire period qualify as HUB expenditures. The amendment deletes subsection (h), which restated reporting requirements contained in §20.285.
The amendment of §20.288 revises the section for accuracy, concision, and ease of comprehension. The revised subsection (a) refers to the online HUB certification system, which is the only accepted method for an applicant to request certification. The revised subsection (c) requires an applicant to provide evidence of Texas residency that is satisfactory to the comptroller. Subsection (c) was divided into two subsections to separate information regarding proof of residency (retained in subsection (c)) from information regarding the comptroller's goal of processing applications within 90 days (now in subsection (d)). The revised subsection (d) eliminates surplus language. The revised subsection (e) clarifies that a business may be denied HUB certification on the basis that it has an unfavorable record of performance on state contracts. The subsection which described a packet of orientation materials provided by the comptroller to new HUBs is deleted to allow flexibility to provide the most current and helpful information by mail, email, meetings, virtual meetings, streaming video, and other means. The revised subsection (j) adds a sentence to specify that the expiration of HUB certifications granted by an organization other than the comptroller occurs as provided by the certifying organization.
The amendment of §20.289 clarifies that a HUB may protest a denial or revocation of certification using the online HUB certification system. The revised section also reflects that a protest is decided by the director of the division of the comptroller responsible for administering state procurement laws, and the director's decision is the final administrative action of the comptroller.
The amendment of §20.290 revises the section to include the online HUB certification system, which is the only accepted method for an applicant to seek recertification.
The amendment of §20.291 revises the section for clarity and to eliminate surplus language. It states that the HUB seeking to avoid revocation of HUB status shall submit documentation through the online HUB certification system. Information regarding the protest process, which merely repeated §20.289, is deleted. New subsection (c) states that businesses that have had their HUB status revoked may not be included in meeting statewide or state agency HUB utilization goals after the end of the last reporting period in which they held certification for at least one day.
The amendment of §20.292 revises the section to provide additional detail and improve ease of comprehension. The revised subsection (a) distinguishes between certification reviews and compliance reviews and specifies that the methods of conducting reviews are desk reviews, virtual reviews, and in-person, onsite reviews. A description of the consequences of a review is moved from subsection (a) to revised subsection (d). The standard for active participation and control by a qualifying owner is relocated from §20.292(c) to §20.283(c) in order to consolidate rules on the same subject. The revised subsection (d) expressly states that HUB certification may be denied or revoked after a certification or compliance review.
The amendment of §20.293 changes the title of the section from "Texas historically underutilized business certification directory" to "historically underutilized business directory" and describes the free online database of current HUB certification information provided by the comptroller. It eliminates references to printed directories or other media, which are no longer used to provide HUB certification information.
The amendment of §20.294 eliminates surplus language, addresses HUB eligibility, and revises the section for ease of comprehension. It adds a title for each subsection. It consistently uses the term "size standards" rather than other terms that are not defined in the rules.
The amendment of subsection (a) clarifies that the size of an entity includes affiliate businesses as defined by the Small Business Administration rules referenced therein. This includes entities that own a HUB or HUB applicant, as well as entities owned by an owner of a HUB or HUB applicant. A HUB applicant that exceeds the size standards in combination with its affiliates will be denied certification or recertification. A HUB that is found to exceed the size standards in combination with its affiliates during a compliance review will graduate from the HUB program.
New subsection (c)(3) provides that the HUB application of a successor in interest of a HUB graduate, meaning a business that has acquired substantially all the assets and liabilities of the HUB graduate, will be treated as a reapplication by the HUB.
The amendment of §20.294 also removes several provisions that are no longer appropriate. The list of Small Business Administration categories in subsection (a) is no longer accurate, because the Small Business Administration instead provides size standards based on industry codes. Because the comptroller has incorporated the Small Business Administration size standards, it does not need to review and reassess the size standards annually as provided in the former subsection (d). Finally, because there is no need for a mentor to be a HUB under the current mentor-protégé program rules, and in fact most mentors are not HUBs, there is no practical reason to keep the provision in former subsection (f) allowing the director to extend a mentor's HUB status after it exceeds the size standards. A mentor that graduates and thus loses its HUB status may continue as a mentor, regardless of HUB status. The amended §20.294 omits each of these provisions.
The amendment of §20.297 eliminates the imprecise conjunction "and/or."
The amendment of §20.298 revises the section for ease of comprehension and to eliminate surplus wording. The revised subsection (a) clarifies that the purpose of the Mentor-Protégé Program is to foster relationships between experienced contractors and HUBs and to increase the ability of HUBs to participate in state contracts and subcontracts. The revised subsection (a) eliminates a redundant statement of the objective of the Mentor-Protégé Program and a description of certain features of the program, which are already described in other subsections. The revised subsection (b) states that agencies "shall consider" certain factors in implementing the Mentor-Protégé Program, rather than stating that agencies "are encouraged to" consider the factors. The amended subsection (e) expressly requires, as a condition of participating as a mentor, an entity's registration on the Centralized Master Bidders List. The revised subsection (h) eliminates unclear guidance regarding the revocation of a protégé's HUB status while the protégé is participating as a subcontractor. As with any other change to a HUB subcontracting plan, the contractor shall work with the state agency in good faith to amend the plan in compliance with §20.285.
The comptroller received comments regarding adoption of the amendment from three parties.
Karen L. Gross (Manager, Supplier Diversity Programs/HUB Coordinator, UTMB Health) made no statement of position for or against adoption, but recommended removal of a possible unintended hyphen in the "meeting-or-exceeding-HUB-goal" method in §20.285(d)(3).
The comptroller has confirmed the referenced hyphens were intended and thus declines to adopt this recommendation.
Karen L. Gross next recommended that each of the four good faith effort methods covered in §20.285(d) be titled to match "the names of the forms."
The comptroller declines to change or remove the proposed titles for the following reasons. Section 20.285 did not previously contain titles for the four good faith effort methods. The proposed titles for three of the good faith effort methods ("all-HUB-subcontractors," "meeting-or-exceeding-HUB-goal," and "self-performing") are substantially the same as the titles of the corresponding HUB subcontracting plan forms prescribed by the comptroller. The remaining good faith effort method is completed by soliciting bids on subcontracts from a specified number of HUBs and organizations. It corresponds to a form titled, "Good Faith Effort with Attachment B." It is the judgment of the comptroller that that title does not describe the method or distinguish it from other methods. The title in the proposed rule, "solicitation method," is more descriptive and better fitting.
Pauline E. Anton and Samuel Guzman (President and CEO, and Chairman of the Board, respectively, Texas Association of Mexican American Chambers of Commerce; no statement of position for or against adoption) stated that proposed changes would not require prime contractors or state agencies to ensure the utilization of historically underutilized businesses. They cited amended §20.285(e) and new §20.285(i) as examples and stated that revisions of a HUB subcontracting plan should only be allowed for clarifications of minor deficiencies. They opined that the referenced subsections do not require monitoring and that the amended §20.285 would allow a prime contractor to represent that it will utilize HUB subcontractors in its initial HUB subcontracting plan submission, and then revise the HUB subcontracting plan following award and instead utilize non-HUB subcontractors. They stated further that the prime contractor must demonstrate good faith in the development of the HUB subcontracting plan "{a}t every step."
The proposed rule was not intended to reduce contractors' obligations to undertake good faith efforts to include HUBs in subcontracting, nor to relieve state agencies of their obligations to monitor contractors' efforts. To make that perfectly clear, the comptroller adopts §20.285 with the following revisions. Subsection (e) no longer includes language referring to revisions for clarity and maximum HUB utilization. Instead, that subsection provides that prior to award, revisions may only be made to cure minor deficiencies in accordance with §20.285(b)(4). Subsection (i), which covers an amendment of a HUB subcontracting plan during the term of a contract, clarifies that the requirement in §20.285(d) to develop a HUB subcontracting plan in good faith (and complete good faith effort methods) also applies to an amended HUB subcontracting plan.
Ms. Anton and Mr. Guzman next stated the rules must require agencies to monitor contracts "to ensure that HUBs are utilized at the highest level to meet the Good Faith minimum of twenty percent (20%)."
There is not currently a requirement in statute or rule for state agencies to utilize a certain "minimum" percentage of historically underutilized businesses in state contracting. Government Code, Chapter 2161, directs the comptroller to adopt rules to provide goals for increasing contract awards from state agencies to qualified HUBs, and further provides all state agencies shall make a good faith effort to increase contract awards for construction and the purchase of goods or services specifically. The comptroller's rules in turn set out statewide HUB goals for procurement categories (e.g., 21.1% for commodities contracts). In consideration of the limited authority provided in statute, the comptroller declines to adopt a 20% minimum rate of HUB utilization.
Laura Cagle-Hinojosa (no statement of position for or against adoption) noted, with respect to §20.285(i), that the statement in the preamble that HUB subcontracting plan revisions "are not part of monitoring a contractor's compliance with the HUB subcontracting plan" (48 TexReg 479) is inaccurate.
The purpose of new §20.285(i) was to separate monitoring provisions from amendment provisions. Although contract monitoring may reveal a need to amend the HUB subcontracting plan, amendments may also occur outside the context of monitoring a contractor's compliance with the HUB subcontracting plan. The adoption reflects this intent. Further, in connection with the comments that follow, subsection §20.285(i) now refers to changes in the HUB subcontracting plan made during the term of the contract as "amendments" rather than "revisions."
Ms. Cagle-Hinojosa next recommended the addition of a sentence in §20.282 that informs additional applicable definitions can be found in §20.25 of this title.
It was the intent of the revision to avoid conflicting or duplicative definitions between Chapter 20 and Subchapter D, Division 1. The proposed sentence is consistent with that intent and may be helpful in navigating the rules. The comptroller has added this as the second sentence of §20.282.
Ms. Cagle-Hinojosa next stated that Government Code, §2161.001(2), defines a historically underutilized business as an entity with its principal place of business in this state, and that the amended definition of "principal place of business" in §20.282(15) should address that requirement. The amended §20.288, concerning the certification process, does not address this requirement and focuses on residency.
The comptroller agrees that the requirement to maintain a principal place of business in Texas is a material component of the definition of a historically underutilized business. The comptroller has accordingly defined "historically underutilized business" in §20.282(7) as an entity that maintains its principal place of business in Texas, consistent with Government Code, §2161.001(2), in addition to other requirements.
Ms. Cagle-Hinojosa next recommended keeping language stricken from the definition of historically underutilized business coordinator in §20.282(8). The stricken language is a restatement of the portion of Government Code, §2161.062(e), that provides a state agency with a biennial budget greater than $10 million shall designate a historically underutilized business coordinator; a procurement director may serve as a historically underutilized business coordinator; and for agencies that employ a coordinator, the position within the agency's structure must be at least equal to the position of procurement director.
The stricken language merely restates the statute, as noted. Furthermore, these requirements applicable to a state agency do not define the role of a HUB coordinator. Therefore, the comptroller adopts the definition of historically underutilized business coordinator in §20.282(8) without revision.
Ms. Cagle-Hinojosa next recommended keeping language stricken from §20.285(a). The stricken language specifies that in determining whether subcontracting opportunities are probable under a contract with an expected value of $100,000 or more, a state agency must measure the contract value "over the life of the contract (including any renewals)." The comment informed that agencies had historically approached valuation of contracts inconsistently, as some would only consider the value during the initial term of the contract in determining whether a HUB subcontracting plan was required. The recommendation was thus to keep the stricken language to avoid inconsistencies in measuring value of contracts.
Contract value is defined in §20.25 to include amendments, extensions, and renewals of a contract. That definition applies to all of Chapter 20, including the proposed rules. By referring to contract value, the proposed §20.285(a) requires agencies to include amendments, extensions, and renewals. Because the recommendation would not further clarify the intent of §20.285(a), that section is adopted without revision.
Ms. Cagle-Hinojosa next stated that §20.285(b)(4) and §20.285(e), which both address the pre-award phase of reviewing whether a HUB subcontracting plan is responsive, are in conflict. Whereas §20.285(b)(4) only provides for revisions of a HUB subcontracting plan to cure minor deficiencies, §20.285(e) allowed revisions "for clarity and maximum HUB utilization." Per the comment, the revisions described in §20.285(e) were too vague and effectively allowed a respondent to submit a revised HUB subcontracting plan, which "has been stated as a major issue for non-attainment of minority/women businesses in disparity studies." Ms. Cagle-Hinojosa further stated revisions of a HUB subcontracting plan during the pre-award phase should be permitted only in connection with clarifications necessary to confirm compliance with the good faith effort requirements.
In response to these comments, and in the interest of clarity, the comptroller has revised §20.285(e) to remove the language authorizing revisions for "clarity and maximum HUB utilization." Instead, the rule states that a submitted HUB subcontracting plan may be revised in accordance with §20.285(b)(4). This change makes clear that revisions of a submitted HUB subcontracting plan may only be made to cure minor deficiencies.
Ms. Cagle-Hinojosa next recommended deleting from the examples of material deficiencies in a HUB subcontracting plan, in §20.285(b)(4), the following: "...producing a description of the resources the respondent will use to self-perform the work." Per the comment, the "evidence for self-performing should be reflected within the actual response," but an agency may request a clarification to determine whether a respondent is self-performing as stated in its HUB subcontracting plan. The comment cited §20.285(d)(4), which expressly provides a state agency may request, and a respondent shall provide, the types of documentation enumerated in §20.285(d)(4)(A)-(D). The comment further informed this documentation is submitted through a clarification request.
In response to this comment, the comptroller has revised the quoted portion of §20.285(b)(4). The updated §20.285(b)(4) clarifies that this example of a material deficiency refers to the omission of the statement of how a contractor intends to fulfill the entire contract that is expressly required by §20.285(d)(4). This initial statement must be submitted with the original HUB subcontracting plan before the response deadline. Although the state agency may allow the contractor to clarify its plan to self-perform the work after the deadline under §20.285(d)(4)(A)-(D), it cannot excuse the contractor's failure to submit its plan with its solicitation response.
Ms. Cagle-Hinojosa next recommended the addition of language to §20.285(h)(1) that expressly requires a state agency, as part of its responsibility to monitor a contractor's compliance with its HUB subcontracting plan, to determine whether the contractor is utilizing only subcontractors named in the HUB subcontracting plan. Per the comment, this task is an important component of ensuring compliance with a HUB subcontracting plan and any amendments require completion of the good faith effort methods described in §20.285(d).
The recommendation is consistent with the intent of proposed §20.285(h)(1) and helps to clarify the state agency's monitoring obligations. The comptroller agrees with the recommendation, and adopts the rule with the addition of the suggested language.
Ms. Cagle-Hinojosa next recommended, in §20.285(i), replacing "revised" with "amended" in connection with changes made to the HUB subcontracting plan during the term of the contract. The reasoning for the recommendation was that a HUB subcontracting plan becomes a contract provision and thus must be amended rather than revised.
The comptroller agrees with the recommendation and has updated §20.285(i) accordingly.
Ms. Cagle-Hinojosa next recommended the addition of language to §20.285(i)(1) and §20.285(i)(3) that expressly provides a contractor must demonstrate good faith by complying with the requirements of §20.285(d) in the development of an amended HUB subcontracting plan. The reasoning was that the recommended language sets out a process for complying with Government Code, §2161.253(b), which requires the contractor to describe good faith efforts made to find and utilize other historically underutilized businesses when subcontracting differs from the original HUB subcontracting plan.
The recommendation is consistent with the intent of proposed §20.285(i) and helps to clarify the standard for approving a contractor's proposed amendment to a HUB subcontracting plan. The comptroller adopts the rule with the recommended modification.
In addition to changes made in response to specific comments, the comptroller made the following revisions to further clarify the rules or their intent, or to make clerical edits determined beneficial during staff review of the proposed rules and comments received.
In §20.282(9), concerning the definition of "HUB directory," "web-site" has been replaced with "website."
In §20.282(17), a stray "and" has been deleted at the end of subparagraph (B).
In §20.282(21), the word "concerning" is replaced with "relating to," to be consistent with the other rules.
Section 20.284(d)(2)(K), concerning procedures that a state agency may adopt in making a good faith effort to assist HUBs in receiving a portion of its awarded contracts, has been revised to provide that HUB-subcontracting-plan-compliance training may also be conducted at agency HUB forums. The comptroller has made this change to provide the full range of options for state agencies to conduct the training for the purpose of demonstrating good faith effort.
Section 20.285(e) has been revised to provide that a HUB subcontracting plan shall "become a provision of" the state agency's contract, which replaces the statement in the proposed amendment of subsection (e) that the HUB subcontracting plan shall "be incorporated into" the state agency's contract. This revision has been made for clarity and to align with Government Code, Chapter 2161.
Section 20.285(h)(1) is adopted with a grammatical correction, replacing the phrase "HUB progress assessment reports" with "each HUB progress assessment report."
These amendments are adopted under Government Code, §2161.0012, which authorizes the comptroller to adopt rules to efficiently and effectively administer Government Code, Chapter 2161 regarding historically underutilized businesses.
These amendments implement Government Code, Chapter 2161.
§20.281.Policy and Purpose.
It is the policy of the comptroller to encourage the use of historically underutilized businesses (HUBs) by state agencies and to assist agencies in the implementation of this policy through race, ethnic, and gender-neutral means. The purpose of the HUB program is to promote full and equal business opportunities for all businesses in an effort to remedy disparity in state procurement and contracting in accordance with the HUB utilization goals specified in the State of Texas Disparity Study.
§20.282.Definitions.
The following words and terms, when used in this division, shall have the following meanings, unless the context clearly indicates otherwise. Additional applicable definitions are located in §20.25 of this title.
(1) Applicant--A corporation, sole proprietorship, partnership, joint venture, limited liability company, or other business organization that applies to the comptroller for certification as a historically underutilized business.
(2) Application--The information, documents, and representations submitted by an applicant that constitute its request for certification as a historically underutilized business.
(3) Commodities--Any tangible goods.
(4) Disparity study--The State of Texas Disparity Study - 2009, conducted by MGT of America, Inc., dated March 30, 2010, or any updates of the study that are prepared on behalf of the state as provided by Government Code, §2161.002(c).
(5) Economically disadvantaged person--Has the meaning assigned by Government Code, §2161.001(3).
(6) Graduation--When a certified HUB exceeds the size standards and becomes ineligible for continued certification as a result.
(7) Historically underutilized business (HUB)--A business organization described in subparagraphs (A) - (F) of this paragraph that is certified by the comptroller because it has not exceeded the size standards established by §20.294 of this title, maintains its principal place of business in Texas, and is:
(A) a corporation formed for the purpose of making a profit in which at least 51% of all classes of the shares of stock or other equitable securities are owned by one or more qualifying owners;
(B) a sole proprietorship created for the purpose of making a profit that is 100% owned, operated, and controlled by a qualifying owner;
(C) a partnership formed for the purpose of making a profit in which 51% of the assets and interest in the partnership is owned by one or more qualifying owners;
(D) a joint venture in which each entity is a HUB;
(E) a supplier contract between a HUB and a prime contractor under which the HUB is directly involved in the manufacture or distribution of the supplies or materials or otherwise warehouses and ships the supplies; or
(F) a business other than described in subparagraphs (B), (C), (D), and (E) of this paragraph, which is formed for the purpose of making a profit and is otherwise a legally recognized business organization under the laws of the State of Texas, provided that at least 51% of the assets and 51% of any classes of stock and equitable securities are owned by one or more qualifying owners.
(8) Historically underutilized business (HUB) coordinator--The staff member designated by a state agency to be primarily responsible for overseeing the implementation of HUB laws and monitoring attainment of HUB utilization goals.
(9) HUB directory--The Historically Underutilized Business Directory published on the comptroller's website.
(10) HUB subcontracting plan--Written plan identifying whether a contract will be self-performed or include the use of subcontractors, which subcontractors will be used, how much of the contract each subcontractor will receive, and how subcontractors were selected.
(11) Mentor-Protégé Program--A program designed by the comptroller to encourage agencies to work with prime contractors and HUBs to foster long-term relationships.
(12) Non-treasury funds--Funds that are not state funds subject to the custody and control of the comptroller and available for appropriation by the legislature.
(13) Other services--All services other than construction and professional services, including consulting services subject to Government Code, Chapter 2254, Subchapter B.
(14) Person--A human being.
(15) Principal place of business--The location where the qualifying owner or owners of the business direct, control, and coordinate the business's daily operations and activities.
(16) Professional services--Services of certain licensed or registered professions that must be purchased by state agencies under Government Code, Chapter 2254, Subchapter A.
(17) Qualifying owner--A person who:
(A) is a resident of the State of Texas;
(B) has a proportionate interest and demonstrates active participation in the control, operation, and management of an applicant;
(C) is a member of one of the following groups:
(i) Black Americans, which includes persons having origins in any of the Black racial groups of Africa;
(ii) Hispanic Americans, which includes persons of Mexican, Puerto Rican, Cuban, Central or South American, or other Spanish or Portuguese culture or origin, regardless of race;
(iii) American Women, which includes all women of any ethnicity except those specified in clauses (i), (ii), (iv), and (v) of this subparagraph;
(iv) Asian Pacific Americans, which includes persons whose origins are from Japan, China, Taiwan, Korea, Vietnam, Laos, Cambodia, the Philippines, Samoa, Guam, the U.S. Trust Territories of the Pacific, the Northern Marianas, and Subcontinent Asian Americans which includes persons whose origins are from India, Pakistan, Bangladesh, Sri Lanka, Bhutan or Nepal;
(v) Native Americans, which includes persons who are American Indians, Eskimos, Aleuts, or Native Hawaiians; and
(vi) Service-disabled Veterans, which includes veterans as defined by 38 U.S.C. §101(2) who have suffered at least a 20% service-connected disability as defined by 38 U.S.C. §101(16) who are not Black Americans, Hispanic Americans, American Women, Asian Pacific Americans, or Native Americans; and
(D) is a U.S. citizen, born or naturalized, or a service-disabled veteran as defined by 38 U.S.C., §101(2) who has suffered at least a 20% service-connected disability as defined by 38 U.S.C., §101(16).
(18) Resident of the State of Texas-- An individual who:
(A) physically resides in the state for a period of not less than six consecutive months prior to submitting an application for HUB certification, and lists Texas as their residency in their most recent tax return submitted to the U.S. Internal Revenue Service, or;
(B) has established, to the satisfaction of the comptroller, a Texas domicile for a period of time sufficient to demonstrate their intention to permanently reside in the state consistently over a substantial period of time.
(19) Response--A submission made in answer to an invitation for bid, request for proposal, or other purchase solicitation document, which may take the form of a bid, proposal, offer, or other applicable expression of interest.
(20) Subcontractor--An entity that contracts with a prime contractor to work or contribute toward completing work under a purchase order or other contract. The term does not include employees of the contractor but includes contracted workers who will work on the contract.
(21) Size standards--Graduation and eligibility thresholds established by the comptroller under §20.294 (relating to Graduation Procedures).
(22) Term contract--A statewide contract established by the comptroller as a supply source for user entities for specific commodities or services.
(23) Vendor Identification Number (VID)--A 13-digit identification number used in state government to identify the bidder or business for payment or award of contracts, certification as a HUB, and on the bidders list.
(24) Work--Providing goods or performing services pursuant to a contract.
(25) Working day--Normal business day of a state agency, not including weekends, federal or state holidays.
§20.283.Evaluation of Active Participation in the Control, Operation, and Management of Entities.
(a) In determining the extent of active participation in the control, operation and management necessary for qualification as a HUB, the comptroller may consider all relevant evidence. In considering and applying the factors set forth in this subsection, the comptroller will consider actual roles and responsibilities of the qualifying owners, rather than titles or statements of intention regarding the owners' role. Factors which may be considered include, but are not limited to:
(1) appearance and relative scope of responsibility of qualifying owners in articles of incorporation or partnership formation documents;
(2) duties and rights of shareholders or partners relative to operational decisions affecting the short term and long term goals of the business;
(3) any restrictive language in articles of incorporation or partnership agreements applicable to qualifying owner;
(4) whether any licenses, certificates, or permits required to operate the business are held by or in the name of the qualifying owner, and whether the qualifying owner is qualified to hold such licenses or permits pursuant to applicable laws and regulations;
(5) the percentages of profit and risk available to the qualifying owner under the corporate or partnership agreements;
(6) ability of other owners or partners to dilute either the ownership percentage or operational powers of the qualifying owner;
(7) whether the qualifying owner has full time employment elsewhere that might conflict with full participation in operation of the business;
(8) the percentage of government versus non-government contracts performed by the business where the qualifying owner actively participates in the bidding of the contract or the performance of the work;
(9) the period of time a qualifying owner participated in the active management and operation of the business prior to the business seeking HUB status; and
(10) whether and to what extent the HUB business shares management, board members, partners, employees, or other resources with another business in amounts or ways which might indicate that they are related or affiliated businesses.
(b) The comptroller may request any additional information it considers necessary to evaluate an applicant as a HUB.
(c) Qualifying owners must be able to make independent and unilateral business decisions which guide the future and destiny of the business, and must be proportionately responsible for the direction and management of the business. Absentee or titular ownership by qualifying owners who do not take an active role in controlling and participating in the business is not consistent with the definition of a HUB.
§20.284.Statewide Annual HUB Utilization Goals.
(a) In accordance with §20.281 of this title (relating to Policy and Purpose) and Government Code, §2161.181 and §2161.182, each state agency shall make a good faith effort to utilize HUBs in contracts for construction, services (including professional and consulting services) and commodities purchases. Each state agency may achieve the statewide and the annual HUB utilization goals specified in the state agency's Legislative Appropriations Request by contracting directly with HUBs or indirectly through subcontracting opportunities.
(b) The statewide HUB utilization goals are:
(1) 11.2% for heavy construction other than building contracts;
(2) 21.1% for all building construction, including general contractors and operative builders contracts;
(3) 32.9% for all special trade construction contracts;
(4) 23.7% for professional services contracts;
(5) 26.0% for all other services contracts; and
(6) 21.1% for commodities contracts.
(c) State agencies shall establish HUB utilization goals for each procurement category identified in subsection (b) of this section. Agencies may set their HUB utilization goals higher or lower than the statewide utilization goals. However, the statewide HUB utilization goals shall be the starting point for establishing state agency-specific goals. State agency-specific HUB utilization goals shall be based on:
(1) a state agency's fiscal year expenditures and total contract expenditures;
(2) the availability to a state agency of HUBs in each procurement category;
(3) the state agency's historic utilization of HUBs; and
(4) other relevant factors.
(d) Each state agency shall make a good faith effort to assist HUBs in receiving a portion of the total value of all contracts that the state agency expects to award in a fiscal year. Factors in determining a state agency's good faith shall include:
(1) the state agency's performance in meeting or exceeding their HUB utilization goals or the statewide HUB utilization goals as they included as part of their legislative appropriations request in accordance with Government Code, §2161.127; and
(2) the state agency's adoption and implementation of the following procedures:
(A) prepare and distribute information on procurement procedures in a manner that encourages participation in state contracts by all businesses;
(B) divide proposed requisitions into reasonable lots in keeping with industry standards and competitive bid requirements;
(C) where feasible, assess bond and insurance requirements and design requirements that reasonably permit more than one business to perform the work;
(D) specify reasonable, realistic delivery schedules consistent with a state agency's actual requirements;
(E) ensure that specifications, terms, and conditions reflect a state agency's actual requirements, are clearly stated, and do not impose unreasonable or unnecessary contract requirements;
(F) provide potential bidders with referenced list of certified HUBs for subcontracting;
(G) develop and apply a written methodology to determine whether their HUB utilization goals are appropriate under the Disparity Study, or whether the statewide HUB utilization goals from the Disparity Study are appropriate for the state agency, and taking into account the provisions of Government Code, §2161.002(d);
(H) identify potential subcontracting opportunities in all contracts and require a HUB subcontracting plan for contracts of $100,000 or more over the life of the contract (including any renewals), where such opportunities exist, in accordance with Government Code, §2161.251;
(I) seek HUB subcontracting in contracts that are less than $100,000 whenever possible;
(J) provide, at a state agency's option, courtesy reviews of respondents' HUB subcontracting plans required to be submitted with responses pursuant to Government Code, §2161.252; and
(K) provide, at a state agency's option, HUB-subcontracting-plan-compliance training to potential respondents during pre-bid, pre-offer, and pre-proposal conferences, or at agency HUB forums.
(e) A state agency may also demonstrate good faith under this section by submitting a supplemental letter with documentation to the comptroller with their HUB report or legislative appropriations request including other relevant information, such as:
(1) identifying the percentage of contracts (prime and subcontracts) awarded to businesses that are not HUBs, but that are owned by economically disadvantaged persons as defined in Government Code, §2161.001;
(2) demonstrating that a different goal from that identified in subsection (b) of this section was appropriate given the state agency's types of purchases;
(3) demonstrating that a different goal was appropriate given the particular qualifications required by a state agency for its contracts;
(4) demonstrating that a different goal was appropriate given that graduated HUBs cannot be counted toward the goal; or
(5) demonstrating assistance to business entities in obtaining HUB certification.
§20.285.Subcontracts.
(a) Analyzing potential contracts of $100,000 or more. In accordance with Government Code, Chapter 2161, Subchapter F, each state agency that considers entering into a contract with an expected value of $100,000 or more shall, before it solicits responses, determine whether subcontracting opportunities are probable under the contract.
(1) State agencies shall use the following steps to determine if subcontracting opportunities are probable under the contract:
(A) examine the scope of work to be performed under the proposed contract and determine if it is likely that some of the work may be performed by a subcontractor;
(B) check the HUB directory for HUBs that may be available to perform the contract work; and
(C) consider whether subcontracting is probable for only a subset of the work expected to be performed or the funds to be expended under the contract.
(2) State agencies may consider additional sources of information regarding the probability of subcontracting, including:
(A) information from other state agencies and local governments; and
(B) information about past state contracts with similar scopes of work.
(b) Requiring HUB subcontracting plans.
(1) If a state agency determines that subcontracting opportunities are probable, the solicitation shall state that probability and explicitly require that any response include a completed HUB subcontracting plan to be considered responsive. The solicitation shall state the applicable HUB utilization goal, and provide information on where to find and how to complete the comptroller's HUB subcontracting plan form.
(2) A state agency shall require HUB subcontracting plans to be submitted with each response. If a state agency permits responses to be submitted in parts, with deadlines for each part, the solicitation shall specify which deadline applies to the HUB subcontracting plan and shall not open responses until after the HUB subcontracting plan is due.
(3) A state agency shall reject any response that does not include a completed and timely HUB subcontracting plan due to material failure to comply with Government Code, §2161.252(b).
(4) If a properly submitted HUB subcontracting plan contains minor deficiencies, such as failure to sign or date the plan or failure to submit already-existing evidence that a good faith effort was completed, the state agency may allow the respondent to cure the minor deficiency. A state agency may not allow a respondent to cure material deficiencies, including completion of a good faith effort after the response deadline (such as contacting minority trade organizations or producing the statement of how the respondent intends to self-perform the work that is required by subsection (d)(4) of this section).
(c) Completing a HUB subcontracting plan. The HUB subcontracting plan shall consist of a completed form prescribed by the comptroller, with attachments as appropriate.
(d) Demonstrating good faith in the development of a HUB subcontracting plan. The HUB subcontracting plan must demonstrate that the respondent developed it in good faith. For each part of the work that the solicitation identified as a probable subcontracting opportunity and each part of the work that the respondent actually intends to subcontract, the respondent must demonstrate its good faith development of a HUB subcontracting plan by a method described in paragraphs (1)-(4) of this subsection.
(1) Solicitation Method. To complete the solicitation method, the respondent shall comply with all requirements of this clause.
(A) The respondent shall divide the work into reasonable lots or portions consistent with prudent industry practices.
(B) The respondent shall notify, in writing, at least two trade organizations or development centers that serve economically disadvantaged persons, of the subcontracting opportunities that the respondent intends to subcontract.
(C) The respondent shall notify, in writing, at least three HUBs of the subcontracting opportunities that the respondent intends to subcontract. The respondent shall provide the notice described in this subclause to three or more HUBs per subcontracting opportunity that provide the type of work required.
(D) The notices required by subparagraphs (B) and (C) of this paragraph shall include the scope of work, information regarding location to review plans and specifications, information about bonding and insurance requirements, required qualifications, and other contract requirements and identify a contact person.
(E) The respondent shall provide the notices required by subparagraphs (B) and (C) of this paragraph at least seven working days prior to submission of the response. Neither the day on which the notice is sent nor the day on which the respondent submits its response count as one of the required seven working days. A state agency may determine that circumstances require a different time period than seven working days but must notify potential vendors of the requirement and document the justification in the contract file.
(F) The respondent shall submit documentation of having provided the notices required by subparagraphs (B) and (C) of this paragraph, including copies of relevant correspondence with the recipients, with its HUB subcontracting plan.
(G) If the respondent selects a non-HUB business to perform a subcontract instead of a HUB that bid for the same subcontract work, the respondent shall include a written justification for the selection in its HUB subcontracting plan.
(H) The respondent shall retain documentation of its compliance with each aspect of the solicitation method and submit it to the state agency upon request.
(2) All-HUB-Subcontractors Method. The respondent may use the all-HUB-subcontractors method to demonstrate a good faith effort for any subcontracting opportunity by submitting documentation that 100% of subcontracting opportunities will be performed by HUBs.
(3) Meeting-or-Exceeding-HUB-Goal Method. The respondent may use the meeting-or-exceeding-HUB-goal method to demonstrate a good faith effort for any subcontracting opportunity by submitting documentation that it will utilize one or more HUBs to perform subcontracts with a total value that will meet or exceed the HUB utilization goal identified by the procuring state agency in the solicitation.
(4) Self-performing Method. The respondent may use the self-performing method to demonstrate a good faith effort for any subcontracting opportunity by providing a statement of how it intends to fulfill the entire contract, including each subcontracting opportunity, with its own equipment, supplies, materials, and employees. The respondent shall provide the following if requested by the procuring state agency:
(A) evidence of existing staffing to meet contract objectives;
(B) monthly payroll records showing employees engaged in the contract;
(C) on-site reviews of company headquarters or work site where services are to be performed; and
(D) documentation proving employment of qualified personnel holding the necessary licenses and certificates required to perform the work.
(5) Subcontracting to a HUB Protégé. If the respondent is a mentor in a mentor-protégé agreement that is registered with the comptroller under §20.298 of this title (relating to Mentor-Protégé Program), the respondent may demonstrate a good faith effort for any subcontracting opportunity by subcontracting the work to its protégé.
(6) The respondent shall use the HUB directory to identify HUBs. If the respondent uses any alternate source, it accepts the risk that its HUB subcontracting plan may be noncompliant due to inaccurate HUB certification information.
(e) Accepting or rejecting the HUB subcontracting plan. The state agency shall review the respondent's HUB subcontracting plan prior to award. The HUB subcontracting plan shall become a provision of the state agency's contract. The agency and contractor may agree to revise the submitted HUB subcontracting plan in accordance with subsection (b)(4) of this section. State agencies shall review the documentation submitted by the respondent to determine if the respondent made a good faith effort. If the state agency determines that a HUB subcontracting plan was not developed in good faith or the good faith effort was incomplete, the state agency shall reject the response. The state agency shall document the reasons for rejection in the contract file.
(f) Contractor records. The contractor shall maintain records documenting its compliance with the HUB subcontracting plan.
(g) Progress assessment reports. The contractor shall submit a progress assessment report to the state agency with each invoice, in the format required by the comptroller. A state agency may, at its option, allow electronic submissions of the compliance report required by this subsection so long as the electronically-submitted compliance reports are in the format and contain all information required by the comptroller. The progress assessment report shall be a condition for payment.
(h) Monitoring HUB subcontracting plan compliance.
(1) During the term of the contract, the state agency shall monitor the contractor's subcontracting by reviewing each HUB progress assessment report to determine whether it complies with the HUB subcontracting plan. The state agency shall perform monitoring at intervals corresponding to invoice submissions. The state agency shall determine if the value of the payments to HUBs meets or exceeds the HUB subcontracting plan, and whether the contractor is utilizing only subcontractors named in the HUB subcontracting plan. The state agency shall document the contractor's performance in the contract file.
(2) To determine if the contractor is complying with the HUB subcontracting plan, the state agency may consider the following:
(A) whether the contractor gave timely notice to the subcontractor regarding the time and place of the subcontracted work;
(B) whether the contractor facilitated access to the resources needed to complete the work; and
(C) any other information the state agency considers relevant.
(3) If the contractor fails to comply with the HUB subcontracting plan, the state agency shall notify the contractor of the deficiencies and give the contractor an opportunity to submit documentation and explain why its failure to fulfill the HUB subcontracting plan should not be attributed to a lack of good faith effort by the contractor. Any deficiencies identified by the state agency must be rectified by the contractor prior to the next reporting period.
(4) The state agency shall report failure to comply with the HUB subcontracting plan to the comptroller in accordance with §20.509 of this title (relating to Vendor Performance Reporting). If the state agency determines that the contractor failed to implement the HUB subcontracting plan in good faith, the state agency may, in addition to any other remedies, bar the contractor from further contracting opportunities with the agency. The state agency may also report nonperformance to the comptroller for consideration for possible debarment pursuant to Government Code, §2155.077. A debarment for failure to implement the HUB subcontracting plan may be for a period of no more than five years.
(i) Amending the HUB subcontracting plan.
(1) Before the contractor performs or subcontracts any part of the contract in a manner that is not consistent with its HUB subcontracting plan, it shall submit an amended HUB subcontracting plan to the state agency for its review and approval. The contractor shall demonstrate good faith by complying with the requirements of subsection (d) of this section in the development of the amended HUB subcontracting plan. Failure to comply with this section may be deemed a breach of the contract subject to any remedies provided by Government Code, Chapter 2161 and other applicable law.
(2) The state agency may approve requested changes to the HUB subcontracting plan by amending the contract. The reasons for amending the HUB subcontracting plan shall be recorded in the contract file.
(3) If a state agency expands the scope of work through a change order or contract amendment, including a renewal that expands the scope of work, it shall determine if the additional scope of work contains additional probable subcontracting opportunities. If the state agency determines probable subcontracting opportunities exist, the state agency shall require the contractor to submit for its review and approval an amended HUB subcontracting plan for the additional probable subcontracting opportunities. The contractor shall demonstrate good faith by complying with the requirements of subsection (d) of this section in the development of the amended HUB subcontracting plan.
§20.286.State Agency Planning Responsibilities.
(a) Agencies are required to prepare a written HUB business plan, which shall provide for increasing the utilization of HUBs in purchasing, and in public works contracts in accordance with Government Code, §2161.123.
(b) Pursuant to Government Code, §2161.003, state agencies shall adopt the comptroller's rules related to administering Government Code, Chapter 2161, Subchapters B and C.
(c) Agencies must include a detailed report with their legislative appropriations request that shows the extent to which the agency complied with Government Code, Chapter 2161, and the rules of the comptroller relating to HUBs. The report should include the state agency's effort to identify HUBs for contracts and subcontracts, the agency's utilization of HUBs, and the agency's successes and shortfalls at increasing HUB participation.
§20.287.State Agency Reporting Requirements.
(a) Non-treasury funds. State agencies will report to the comptroller, not later than March 15 of each year regarding the previous six-month period and on September 15 of each year regarding the preceding fiscal year, the payments made for the purchase of goods and services awarded and actually paid from non-treasury funds by the state agency. The report shall include information requested by the comptroller and shall be in a form prescribed by the comptroller. State agencies' purchases from state term contracts or group purchases which are paid from non-treasury funds must be identified on the report as such so that they may be reflected on the comptroller's report of its own purchases.
(b) Monthly information. State agencies shall maintain and compile monthly information relating to the use of HUBs by the agency and each of their operating divisions, including information regarding subcontractors and suppliers.
(c) Spending totals. State agencies will report to the comptroller, not later than March 15 of each year regarding the previous six-month period and on September 15 of each year regarding the preceding fiscal year, the total dollar amount of HUB and non-HUB contracting and subcontracting participation in all of the agencies' contracts for the purchase of goods, services and public works. State agencies must include contracting and subcontracting participation paid from treasury and non-treasury funds.
(d) Group purchasing report. State agencies that participate in a group purchasing program under Government Code, §2155.144 shall submit a separate report to the comptroller, not later than March 15 of each year regarding the previous six-month period and September 15 of each year regarding the preceding fiscal year, of purchases that are made through the group purchasing program and shall report the dollar amount of each purchase that is allocated to the reporting state agency.
(e) Consolidated report. The comptroller shall prepare a consolidated report based on a compilation and analysis of the reports submitted by each state agency and other information available to the comptroller. These reports of HUB purchasing and contracts shall form a record of each state agency's purchases in which the state agency selected the contractor. If the contractor was selected by the comptroller as part of its state term contract program, the purchase will be reflected on the comptroller's report of its own purchases. The comptroller report will contain the following information:
(1) the total dollar amount of payments made by each state agency;
(2) the total number of HUBs paid by each state agency;
(3) the total number of contracts awarded to HUBs by each state agency;
(4) the number of responses received from HUBs by each state agency; and
(5) the graduation rate of HUBs as defined in §20.294 of this title (relating to Graduation Procedures).
(f) Report to legislature. On May 15 of each year, the comptroller shall submit the consolidated report regarding the previous six-month period and on November 15 of each year regarding the preceding fiscal year to the presiding officer of each house of the legislature, the members of the legislature and the joint select committee.
(g) Determination of HUB expenditures. State agencies shall report as HUB expenditures the total payments made directly to certified prime and subcontractor HUBs under the Vendor Identification Number in the comptroller's HUB directory as follows:
(1) A state agency shall report as HUB expenditures payments made to prime and subcontractor HUBs who were certified for at least one day during the reporting period.
(2) When the prime contractor is a HUB, it must perform at least 25% of the total value of the contract with its own or leased employees, as defined by the Internal Revenue Service, in order for the state agency to report all payments to the prime contractor for the contract as HUB expenditures. If a HUB prime contractor performs less than 25% of the total value of contract with its employees or leased employees, the state agency shall only report as HUB expenditures the value of the contract that was actually performed by the contractor and its HUB subcontractors.
§20.288.Certification Process.
(a) A business seeking certification as a HUB must submit an application through the online HUB certification system, affirming under penalty of perjury that the business qualifies as a HUB.
(b) If requested by the comptroller, the applicant must provide any and all materials and information necessary to demonstrate a qualifying active participation in the control, operation, and management of the HUB.
(c) A person claiming Texas residency must prove residency status by submitting:
(1) a current valid Texas driver's license or I.D. card; and
(2) additional evidence of residency satisfactory to the comptroller, such as an appraisal statement for Texas real property (including whether a homestead exemption was claimed for that real property) or most recent paid utility statements.
(d) The comptroller shall certify the applicant as a HUB or provide the applicant with written justification of its denial of certification within 90 days after the date the comptroller receives an application.
(e) The comptroller may reject an application based on one or more of the following:
(1) the application is not satisfactorily completed;
(2) the applicant does not meet the requirements of the definition of HUB;
(3) the application contains false information;
(4) the applicant does not provide required information in connection with the certification review conducted by the comptroller; or
(5) the applicant has an unfavorable record of performance on prior contracts with the state.
(f) The comptroller may approve the existing certification program of one or more local governments or nonprofit organizations in this state that certify historically underutilized businesses, minority business enterprises, women's business enterprises, or disadvantaged business enterprises that substantially fall under the same definition, to the extent applicable for HUBs found in Government Code, §2161.001, and maintain them on the comptroller's HUB directory, if the local government or nonprofit organization:
(1) meets or exceeds the standards established by the comptroller and
(2) agrees to the terms and conditions as required by statute relative to the agreement between the local government or nonprofits for the purpose of certification of HUBs.
(g) The agreement in subsection (f) of this section must take effect immediately and contain conditions as follows:
(1) allow for automatic certification of businesses certified by the local government or nonprofit organization as prescribed by the comptroller;
(2) provide for the efficient updating of the HUB directory;
(3) provide for a method by which the comptroller may efficiently communicate with businesses certified by the local government or nonprofit organization;
(4) provide those businesses with information about the state's Historically Underutilized Business Program; and
(5) require that a local government or nonprofit organization that enters into an agreement under subsection (f) of this section, complete the certification of an applicant with written justification of its certification denial within the period established by the comptroller in its rules for certification.
(h) The comptroller will not accept the certification of a local government or nonprofit organization that charges money for the certification of businesses to be listed on the HUB directory.
(i) The comptroller may terminate an agreement made under this section if a local government or nonprofit organization fails to meet the standards established by the comptroller for certifying HUBs. In the event of the termination of an agreement, those HUBs that were certified as a result of the agreement will maintain their HUB status during the fiscal year in which the agreement was in effect. Businesses which are removed from the HUB directory as a result of the termination of an agreement with a local government or nonprofit organization may apply to the comptroller for certification.
(j) The certification is valid for a four-year period beginning on the date the comptroller certifies the applicant as a HUB. If the certification was granted by an organization other than the comptroller under subsections (f) and (g) of this section, it is valid for the period granted by that organization.
§20.289.Protests.
An applicant may protest the comptroller's denial or revocation of certification by filing a protest through the online HUB certification system within 30 days after the date the comptroller sent notice of the denial or revocation to the applicant. The director will consider the protest and issue a final decision. The director's decision shall be the final administrative action of the comptroller.
§20.290.Recertification.
Upon expiration of the four-year period, a HUB that desires recertification must:
(1) submit an application through the online HUB certification system; and
(2) comply with the requirements specified in §20.288 of this title (relating to the Certification Process) which apply to the recertification process.
§20.291.Revocation.
(a) The comptroller shall revoke the certification of a HUB if the comptroller determines that a business does not meet the definition of HUB or that the business fails to provide requested information in connection with a certification review conducted by the comptroller. The comptroller shall provide the business with written notice of the proposed revocation. A HUB shall have 30 days from receipt of the written notice to provide written documentation through the online HUB certification system stating the basis for disputing the revocation. The comptroller shall evaluate the documentation to determine the HUB's eligibility, and provide the applicant with written notification of the decision.
(b) If a HUB is barred from participating in state contracts in accordance with Government Code, §2155.077, the comptroller shall revoke the certification of that business for a period commensurate with the debarment period.
(c) Businesses that have had their HUB status revoked may not be included in meeting statewide or state agency HUB utilization goals after the end of the last reporting period in which they held certification for at least one day.
§20.292.Certification and Compliance Reviews.
(a) The comptroller will conduct certification reviews of applicants and compliance reviews of certified HUBs. The comptroller may perform random or targeted compliance desk, virtual, or in-person, onsite reviews. The comptroller may verify the information submitted by a business is accurate, and the business continues to meet all HUB eligibility requirements after certification has been granted. Certification and compliance reviews of any business may be conducted upon determining a review is warranted.
(b) Businesses subject to certification and compliance reviews must provide the comptroller with any information requested to verify the eligibility of the business.
(c) The applicant's business documentation shall be reviewed to substantiate the required level of participation and control, and must demonstrate responsibility in the critical areas of the business' operation as set forth in §20.283 of the title (relating to Evaluation of Active Participation in the Control, Operation, and Management of Entities).
(d) If a business does not meet all eligibility requirements or does not provide requested information within the timeframe specified by the comptroller, the business will be denied certification or have its certification revoked.
§20.293.Historically Underutilized Business Directory.
The comptroller provides an online HUB directory that is updated daily to indicate current certification status. Access to the HUB directory is free and open to the public.
§20.294.Graduation Procedures.
(a) Size Standards. A HUB shall graduate from being eligible for HUB certification when it has maintained gross receipts or total employment levels during four consecutive years which, including all affiliates, exceed the U.S. Small Business Administration size standards set forth in 13 CFR Part 121.
(b) Graduation. Businesses that achieve the size standards identified in subsection (a) of this section have reached a competitive status in overcoming the effects of discrimination. The comptroller shall review, as part of the certification or recertification process, the financial revenue or relevant data of a business to determine whether the size standards identified in subsection (a) of this section have been achieved. When the comptroller determines that the business exceeds the applicable size standard, the comptroller shall inform the business that it has graduated and is no longer certified as a HUB, and shall remove the business from the HUB directory.
(c) Effects of Graduation.
(1) Businesses that have graduated from the HUB program may not be included in meeting statewide or state agency HUB utilization goals after the end of last reporting period in which they held certification for at least one day.
(2) A business that has graduated or does not qualify as a HUB under this title, shall be eligible to reapply for HUB certification only after demonstrating that it meets the qualifications for HUB, including the size standards.
(3) A business is considered a successor in interest if it has acquired substantially all of the assets and liabilities of another business. The application of the successor in interest to a HUB that has graduated will be treated as a reapplication of the HUB. The successor in interest applicant must show that it meets the size standards before it is considered eligible to apply.
§20.297.HUB Forum Programs for State Agencies.
(a) In accordance with Government Code, §2161.066, the comptroller shall design a program of forums in which HUBs are invited by state agencies to deliver technical and business presentations that demonstrate their capability to do business with the state agency:
(1) to senior managers and procurement personnel at state agencies that acquire goods and services of a type supplied by the HUBs; and
(2) to prime contractors or vendors with the state who may be subcontracting for goods and services of a type supplied by the HUBs.
(b) Each state agency with a biennial appropriation exceeding $10 million shall participate in the forums by sending senior managers and procurement personnel to attend relevant presentations. The state agency will inform their prime contractors or vendors about presentations relevant to subcontracting opportunities for HUBs and small businesses. The comptroller and each agency that has a HUB coordinator shall:
(1) design its own forum program and model the program, to the extent appropriate, following the format established by the comptroller;
(2) sponsor presentations by HUBs at the state agency offices unless state agency facilities will not accommodate forum participants as determined and documented by the HUB Coordinator; and
(3) identify and invite HUBs to make marketing presentations on the types of goods and services they provide.
(c) Agencies may elect to implement forums individually or cooperatively with other agencies. The state agency's forum programs may include, but are not limited to, the following initiatives:
(1) providing marketing information that will direct HUBs to key staff within the agency;
(2) requesting other state agencies to assist in the preparation and planning of the forum when necessary;
(3) informing HUBs about potential contract opportunities and future awards; and
(4) preparing an annual report of each sponsored and cosponsored forum.
§20.298.Mentor-Protégé Program.
(a) The Mentor-Protégé Program is a program administered by the comptroller in accordance with Government Code, §2161.065, and implemented by state agencies. The purpose of the Mentor-Protégé Program is to foster long-term relationships between experienced contractors and HUBs and to increase the ability of HUBs to obtain and perform contracts and subcontracts for state agency business. Each state agency with a biennial appropriation that exceeds $10 million shall implement the Mentor-Protégé Program.
(b) Each state agency that implements the Mentor-Protégé program shall consider:
(1) the needs of protégé businesses requesting to be mentored;
(2) the availability of mentors who possess unique skills, talents, and experience related to the mission of the state agency's program; and
(3) the state agency's staff and other resources.
(c) Agencies may elect to implement the Mentor-Protégé Program individually or in cooperation with other agencies, public entities, or private organizations. Agencies are encouraged to implement a Mentor-Protégé Program to address the needs of protégé businesses in the following areas:
(1) construction;
(2) commodities; and
(3) services.
(d) State agencies may consider, but are not limited to, the following factors in developing their Mentor-Protégé Program:
(1) internal procedures, including an application process, regarding the Mentor-Protégé Program which identifies the eligibility criteria and the selection criteria for mentors and potential HUB protégé businesses;
(2) recruitment of contractor mentors and protégés;
(3) documentation of the roles and expectations of the state agency, the mentor and the protégé;
(4) monitoring progress of mentor-protégé relationships;
(5) key agency resources including senior managers and procurement personnel to assist with the implementation of the program;
(6) partnerships with local governmental and nonprofit entities;
(7) the appropriate length of time for mentor-protégé relationships to continue (generally limited to four years);
(8) guidance related to the Mentor-Protégé Program in the Disparity Study; and
(9) assessment of the effectiveness of their Mentor-Protégé Program by conducting periodic surveys and interviews of mentors and protégés.
(e) A state agency's Mentor-Protégé Program implementation must include mentor eligibility and selection criteria. In determining the eligibility and selection of a mentor, state agencies shall require each mentor to be registered on the Centralized Master Bidders List (CMBL); and may additionally consider the following criteria:
(1) whether the mentor has extensive work experience and can provide developmental guidance in areas that meet the needs of the protégé, including but not limited to, business, financial, and personnel management; technical matters such as production, inventory control and quality assurance; marketing; insurance; equipment and facilities; and other related resources;
(2) whether the mentor is in "good standing" with the State of Texas and is not in violation of any state statutes, rules or governing policies;
(3) whether the mentor has mentoring experience;
(4) the number of protégés that a mentor can appropriately assist;
(5) whether the mentor has a successful past work history with the state agency;
(6) the amount of time a HUB has participated as a mentor in the program, or in other agencies' programs; and
(7) whether and to what extent the mentor and protégé businesses share management, board members, partners, current or former employees, or other resources that might indicate that they are related or affiliated businesses.
(f) A state agency's Mentor-Protégé Program implementation must include protégé eligibility and selection criteria. In determining the eligibility and selection of HUB protégés, state agencies may use the following criteria:
(1) whether the protégé is eligible and willing to become certified as a HUB;
(2) whether the protégé's business has been operational for at least one year;
(3) whether the protégé is willing to participate with a mentor and will identify the type of guidance that is needed for its development;
(4) whether the protégé is in "good standing" with the State of Texas and is not in violation of any state statutes, rules, or governing policies;
(5) whether the protégé is involved in a mentoring relationship with another contractor;
(6) the amount of time a HUB has participated as a protégé in the program, or in other agencies' programs; and
(7) whether and to what extent the mentor and protégé businesses share management, board members, partners, employees, or other resources that might indicate that they are related or affiliated businesses.
(g) The mentor and the protégé should agree on the nature of their involvement under the state agency's Mentor-Protégé Program. The state agency will monitor the progress of the relationship. The mentor and protégé relationship should be reduced to writing and may include, but is not limited to, the following:
(1) identification of the developmental areas in which the protégé needs guidance;
(2) the time period which the developmental guidance will be provided by the mentor;
(3) points of contact that will oversee the agreement of the mentor and protégé;
(4) procedure for a mentor to notify the protégé in advance if it intends to withdraw from the program or terminate the mentor-protégé relationship;
(5) procedure for a protégé to notify the mentor in advance if it intends to terminate the mentor-protégé relationship; and
(6) a mutually agreed upon timeline to report the progress of the mentor-protégé relationship to the state agency.
(h) The protégé must maintain its HUB certification status for the duration of the agreement.
(i) Each state agency must notify its mentors and protégés that participation is voluntary. The notice must include written documentation that participation in the state agency's Mentor-Protégé Program implementation is neither a guarantee of a contract opportunity nor a promise of business; but the program's intent is to foster positive long-term business relationships.
(j) State agencies may demonstrate their good faith under this section by submitting a supplemental letter with documentation to the comptroller with their HUB report or legislative appropriations request identifying the progress and testimonials of mentors and protégés that participate in the state agency's program.
(k) Each state agency that implements the Mentor-Protégé Program must report that information to the comptroller upon completion of a signed agreement by both parties. Information regarding the Mentor-Protégé Agreement shall be reported in a form prescribed by the comptroller within 21 calendar days after the agreement has been signed. The comptroller will register that agreement on the approved list of mentors and protégés. Approved Mentor-Protégé Agreements are valid for all state agencies in determining good faith effort for the particular area of subcontracting to be performed by the protégé as identified in the HUB subcontracting plan.
(l) The comptroller shall retain and make available to state agencies all registered Mentor-Protégé Agreements. The sponsoring state agency shall monitor and report the termination of an existing Mentor-Protégé Agreement that has been registered with the comptroller within 21 calendar days.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on July 20, 2023.
TRD-202302605
Don Neal
General Counsel Operations and Support Legal Services
Comptroller of Public Accounts
Effective date: August 9, 2023
Proposal publication date: February 3, 2023
For further information, please call: (512) 475-2220